Friday, March 4, 2011

Borders Goes Bust

Borders files for Chapter 11:

Posted by Barry Silverstein on February 16, 2011 11:30 AM

Just about a year ago, we were talking about the inevitability of a Borders bankruptcy. That day is finally here — and the only surprise is that it took as long as it did.

Borders, the embattled US bookseller that once competed with the likes of Amazon and Barnes & Noble, filed for chapter 11 bankruptcy protection today and will close about 200 stores out of around 640 and reduce its staff.

It's still expressing optimism that it can manage a comeback. Its Twitter feed today responded to a concerned customer, "Our goal is to emerge from the Chapter 11 process as a vibrant destination for books & more for years!" 

Borders' largest unsecured creditors include such publishers as Hachette, Harper Collins, Macmillan Penguin Putnam, Random House, and Simon & Schuster, according to the company's bankruptcy filing. While Chapter 11 allows for reorganization, it's anybody's guess if Borders can re-engineer its business model to compete successfully.

Borders got its start as a college town bookstore in Ann Arbor, Michigan, home of the University of Michigan. It was opened in 1971 by Tom and Louis Borders and developed a reputation as a cool hangout with knowledgeable employees. The store expanded into a chain through the 1990s with some of its growth coming from a combination with Waldenbooks in the early 90s.

By 2010, Borders had over $2 billion in revenue, but it recorded a lost of over $168 million for the year, partially due to a major investment in marketing Kobo (see below), its e-reader rival to Amazon's Kindle, Barnes & Noble's nook — and of course Apple's iPad.

In announcing the brand's bankruptcy filing, Borders president Michael Edwards made the following statement:

"It has become increasingly clear that in light of the environment of curtailed customer spending, our ongoing discussions with publishers and other vendor related parties, and the company's lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor and which are essential for it to move forward with its business strategy to reposition itself successfully for the long term."

From a branding perspective, Borders/Waldenbooks had little to distinguish itself from its primary bricks and mortar competitor, Barnes & Noble, which tended to have larger stores and offer deeper discounts on books. Barnes & Noble successfully built an online operation designed to compete with, while Borders languished in e-commerce and at one point, used Amazon for its online fulfillment. Borders also seemed to be late in recognizing the popularity of ebooks, even as Amazon and Barnes & Noble were battling it out with their e-readers, the Kindle and nook.

In some ways, the downfall of Borders mirrors the bankruptcy of Blockbuster. This high-flying video rental chain also missed the movement of the market, clinging to in-store rentals of DVDs while the rest of the world was transitioning to online rentals and digital media.

In a changing media world, retailers have to move forward or get out of the way. Borders and Blockbuster clear did not move quickly enough.


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